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NFL (NFLX.US): The US market ceiling is gradually visible. The growth rate of overseas markets is difficult to maintain.

November 09, 2018 08:04
Author: Hong Kong stocks research reports Jun
source: Glonway

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Agency:Tianfeng Securities

Rating: Hold

Target price: HK$330

  The number of users has grown faster than expected, and international paying users have reached a high base of $0.89 for Netflix2018Q3GAAPEPS, exceeding market expectations of $0.68.The revenue was 4 billion US dollars, up 34% year-on-year, which was basically in line with expectations and guidance. This quarter, the total number of users increased by 6.96 million, including 1.09 million users in the United States and 5.87 million international users, which was significantly better than expected. However, given that Q2 is not up to expectations, Q2+Q3 totals a total net increase of 12.11 million, which is basically the same as the expected 11.41 million. The total paid subscribers of Q3 increased by 6.07 million, up 25% year-on-year, and ASP increased by 8% year-on-year. The growth rate was lower than that of the previous quarter, which was higher than the guidance of 5.15 million. Among them, the number of paid users in the United States increased to 59.6 million; the number of international paying users increased by 5.07 million to 73.46 million. The company also said that it will draw guidelines for paying users starting next year, and the number of users will be removed from 2020. Q3's operating margin was 12%, and free cash flow deteriorated to $859 million, compared to $465 million in the same period last year. 18Q4 Guidelines: The total number of users increased by 9.4 million, compared with 5.3 million last year and Wall Street's expected 8.25 million. US users increased by 1.8 million, and international users increased by 7.6 million. The annual operating profit margin is 10-11%.

  The ceiling of the US market is gradually visible. The growth rate of overseas markets may be difficult to maintain. The year-on-year growth rate of US-based paying subscribers in the United States should continue to be measured in the long-term. The saturation situation is inevitable.In combination with e Marketer data, Netflix's 57 million paying users have a penetration rate of about 65% in US digital video users. Netflix currently has a broadband penetration rate of 50-55% in the US, while the ceiling is about 76% of the US cable TV family. Permeability, Naifei's long-term penetration rate should be 70-75%, which is also in line with the company's long-term goal of US-subscribers in 6-9 million people. Netflix international paying users maintained a growth rate of around 40% for the seventh consecutive quarter, but the expansion to non-English areas faced local competition in different markets. There was no good precedent for cultural adaptation and audience taste, although Q3 launched the Mexican original drama. "La Casadelas Flores" and the Indian original drama "Sacred Games" were well received by the local community. Naifei said in July that there are still seven original dramas in India. We believe that the expansion of the company in overseas regions depends greatly on whether the original drama reserve can continue. With the arrival of high bases in different countries, the growth rate may slow down to 20-30% interval.

  The pattern of high investment and high audience can be sustained, and the enemy is eager to cut the OTT market cake.

Continuous high-quality content production requires strong pipeline investment reserves and IP barrier construction. Based on the first-mover advantage, Netflix strives to prove that the business model of “high investment – ​​high reputation – high audience” is feasible. The cost of Q3 content is nearly 2.4 billion US dollars, and it is close to 7 billion US dollars in the first three quarters. The company had expected to invest about 8 billion in the whole year. Dollar. According to Stastata, although Naifei is the most invested in Internet companies, it is about 6.3 billion in 17 years.Amazon4.5 billion, Hulu 2.5 billion, but has not yet reached NBC102 / Fox 80 / Time Warner 80 /Disney7.8 billion in volume. Enemy enemies and newcomers' capital investment will intensify competition in the OTT market, including YouTube's high penetration rate. Amazon Video utilizes both Prime's highly viscous user diversion, and Hulu is backed by Fox, Comcast, Disney, and Time Warner. Thick IP barriers are intended to cut OTT market cakes.

In addition, although Netflix has won 23 Emmy Award-winning bonuses and explored its artisan star platform through hot-selling dramas, some of the dramas starred in the number of Instagram fans in the two months (up to a maximum of 12.6 million). However, this year's Netfair drama collection has a certain differentiation. Streaming Observer is ranked 7th according to professional film review sites such as Meta critic and Rotten Tomatoes. It is behind the top of the list, HBO, and second place Hulu, fourth place. Amazon. We believe that the drama mode as a semi-heavy form of entertainment will simultaneously face video games, as well as more short-lived short live video broadcasts such as light entertainment, and the competition to keep users' attention is fiercer.

  Valuation:We use the Football Field valuation method to verify a more reasonable target price range of $308-363 using five valuation methods, P/E, P/S, EV/Sales, EV/EBITDA and EV/EBIT. On the whole, we believe that Netflix has a relatively obvious growth ceiling. The continuous high investment mode will be affected by the market competition after more players enter the game next year, and the localization expansion of the international market is more difficult. Growth is difficult to maintain. We maintain $330

Target price, maintain "hold" rating.

Risk warning: the growth of the number of users is weak, and the OTT market is highly competitive.


(Article source: Gloem)

                (Editor: DF381)

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